SPRING '01 - 15.615 -- THE MANAGER'S LEGAL FUNCTION
FINAL EXERCISE
1. Weighting and strategy: There are two questions. Answer both. They will be weighted
equally. Each question has two parts. Answer each part. They will be weighted equally. Mark
clearly where the answer to each question and part begins. Each particular point you should
address appears in a sentence or clause ending with a “?” Don’t neglect to respond to any “?”
2. Sources: You may consult any sources. But the only sources you are expected to consult are
the assigned readings and lectures for the course. Your answers will be evaluated in terms of
those readings and lectures, especially the readings, so consulting other sources is not likely to
do much good. The key materials for this exercise are those for class 21 (second class on
bankruptcy) through class 22 (on e-commerce).
3. Format and submission of answers: You should submit your answers in paper copy at the
start of Thursday’s class, unless some other arrangement has been made. Your exam should
have a cover sheet which includes your name, “ESL” if English is your second language, and a
precise word count for the entire document. Please start each of the two questions on a fresh
sheet.Your entire submission should not exceed 2,000 words.
4. Some general advice: You aren't supposed to be a lawyer, and I don’t expect you to have
definite answers to legal questions. You are supposed to be a manager with educated instincts
about legal problems, including an understanding of broad legal doctrines, the ability to spot
where legal issues will have an impact on a business arrangement and the individuals involved,
and the ability to evaluate in a preliminary way how legal considerations shape risks and
opportunities. Each exam question will ask you to address legal issues in a business context
from the point of view of a manager. It will not be necessary to cite specific cases or statutes.
Make sure that, in your answer, you show that you understand general legal principles and can
apply them to specific facts. I don’t try to “trick” people in these exams. Look for the main
issues suggested by the facts and questions and get to them. You are free to spend as much or as
little time on this exam as you decide. However, I do not think you should have to spend more
than five hours if you have been doing the reading during the semester, and you may be able to
complete the exam in much less time than that.
FACTUAL BACKGROUND TO BOTH QUESTIONS
You are the COO at TechMD Co. (“TMD”), a start-up company with a hot technology.
Diagnostic imaging (of which the earliest technology was X-rays, but which now includes safer
and more powerful tools such as CT scans) is one of the fastest growing fields in medicine. With
TMD’s technology, a radiologist (the medical specialist who interprets diagnostic images) can
use the internet to draw upon a data-bank of diagnostic images and the medical treatment records
associated with those images. The software permits images to be matched, similar to the way a
police department matches fingerprints, although TMD’s software is more complex in that the
doctor can specify features upon which a match is based. For example, if a radiologist detects a
brain tumor with an atypical location and shape, TMD’s technology could call up dozens of the
most closely-matched images in TMD’s data bank. The radiologist could find out how these
other cases had been diagnosed and treated, and the resulting medical outcomes.
TMD has gone through two rounds of financing, during which it has developed a
prototype, and arranged preliminary evaluation by doctors and hospitals from which the reports
have been positive.
Your boss at TMD is Ms. Top Dog, whose training is in computer science. Your
background is management and strategic planning, and so Ms. Top Dog relies heavily on you in
business matters. Until recently, TMD had a simple business model in mind: TMD would
market its technology to doctors and hospitals. However, recent developments have prompted
consideration of a more complex model. First, it is becoming clear that a very large data-bank
will be needed, since doctors find this tool most useful for atypical scans. In fact, TMD will
need to recruit a large proportion of the major medical teaching centers in the US. Second, it has
become clear that these medical teaching centers are not willing to simply provide their records
and use TMD’s service. Rather, they want some proprietary stake in the venture. In fact, there
already exists a company, called The Data Joint Venture Co (“DJV”), which is a for-profit
company created and owned by a half-dozen leading medical teaching centers, which has been
involved in simpler forms of image sharing. The medical teaching centers which set up DJV
want to expand it to other centers and then have the expanded DJV form a strategic partnership
with TMD. If TMD is not responsive, there is a good chance that DJV will try to develop a
competing technology.
QUESTION I:
Ms. Top Dog is planning to sit down with TMD’s attorneys and executive committee to
review a series of law-sensitive planning issues. She wants to first try to get some appreciation
of the issues in a preliminary discussion with you. She knows you aren’t a lawyer, but you have
a much better grasp of these issues than she does. She has asked you for a brief memo raising
what you think might be the key law-sensitive issues with respect to the following:
A. The structure of DJV and antitrust law: Ms. Top Dog would like DJV to be a
relatively passive strategic partner, but DJV is likely to want an assertive role. She is
wondering if the antitrust laws might work to TMD’s advantage. Is it likely that the
antitrust laws will put limits on a plan by DJV to bring within DJV a large proportion
of major medical centers across the country? What would be the relevant antitrust
analysis and law-sensitive issues? Is it likely that DJV may be pressed by the
antitrust laws into a relatively passive role in its dealings with TMD? What would be
the relevant antitrust analysis and law-sensitive issues?
B. Protecting TMD’s intellectual property: Having DJV as a close strategic partner is
going to make protecting TMD’s intellectual property more difficult. DJV is
sophisticated and a potential competitor. What kinds of intellectual property
protection would best protect TMD? How should TMD plan for the fact that the
relevant technology will continue to evolve? What are the main legal risks TMD
faces with respect to compromising its IP position, especially with respect to DJV?
(over)
QUESTION II:
It is a year later, and it has been a bad year. Some key personnel defected. There have
been mutterings from potential customers that the image matching needs refinement for many
diagnoses, which will set back development by at least 18 months. And there has been serious
divisiveness at the Board level. As a result, money is running out and it is not going to be easy
to raise more.
Ms. Top Dog is about to go into a meeting of the board’s Executive Committee, and there
are two issues as to which she would like some preliminary advice from you.
A. The Pusher proposal: Ms. Top Dog was approached a week ago by Mr. Big Cheese,
the CEO of PusherCo, a major manufacturer of pharmaceuticals and medical devices.
Mr. Cheese said that Pusher was willing to pump funds into TMD. He casually
mentioned loans or investments or a combination of both, and threw around big
numbers. But he emphasized that one of Pusher’s crucial requirements would be that
Pusher would have to be confident that, if TMD did go into bankruptcy, Pusher would
walk away with TMD’s core technology. Can a deal with Pusher be structured which
would give Pusher that result? How do different possible forms of cash infusion
from Pusher affect this analysis?
B. The problem board members: Ms. Top Dog is troubled by the recent attitude of Mr.
Vulture, one of TMD’s board members. Mr. Vulture was put on the board by one of
the second-round VC firms. But for the past six months, it has often seemed that Mr.
Vulture was more interested in getting his firm out of TMD than in TMD’s success.
Ms. Top Dog suspects this reflects some reordering of priorities within Mr. Vulture’s
VC firm. She expects Mr. Vulture to propose that the deal with Pusher be structured
so that current investors have the option to be bought out, although only Mr.
Vulture’s firm would be interested. That will make the deal less attractive to Pusher.
Up until now, Ms. Top Dog has put up with what she considers Mr. Vulture’s lack of
focus on TMD’s interests, but she does not want a possible Pusher deal compromised.
Does she have a firm legal basis on which to challenge Mr. Vulture if he acts as she
anticipates? What are the relevant legal standards?
[end]